August 12, 2012

Global Competition

We need to learn how to compete globally. If all countries do not play by "free market rules" you don't have free markets. I believe in free markets and I concur with Milton Friedman that free markets, in order for them to work properly, must have a referee so that all players are competing on a level playing field. Each player in the market must not be allowed to destroy the market and turn it into an oligopoly. If this happens society loses. Capitalism is here to serve society. Society is not here to serve capitalism.

A problem with global markets is there is no strong referee to punish countries that do not abide by free market principles. It is not easy to force China not to manipulate its currency. It is difficult to require China, South Korea and Japan to remove the tariffs placed on imports of automobiles from the U.S.
Below is an excerpt from an August 4, 2012 article in the New York Times, In Pursuit of Nissan, a Jobs Lesson for the Tech Industry?. In order to give the American worker a fair shot at good jobs we need to consider such national strategies.

"Apple products remain expensive; the latest iPad, for instance, costs about $760 in Brazil, compared with $499 in the United States. But because those devices are made in Brazil and lower tariffs are charged on parts used to assemble them, Foxconn and Apple are pocketing larger shares of the profits, analysts say, offsetting the increased costs of building outside China."

This is a way of redistributing income. Make products within the U.S., subsidize the producer by reducing tariffs and other taxes and provide good paying jobs to workers. The result is higher prices for goods and services.

As someone who believes in free markets, for years I have resisted doing such things. A free market mentality may not work as well when dealing with other players, other countries, who are willing to trample over the concept of capitalism. Here are some comments made by Romney concerning China's approach to competing.

These "higher prices" represent the real cost to our economy. The "lower prices" are not fully paid for. The difference is loaned to us by the producer (ie., Japan, China). We then pay interest, and the wealth destruction accelerates our economic downfall. You cannot consume more than you produce. Tax consumption? Not allowing foreign countries to buy our debt? These may be the solutions needed. Our current model ensures our decline. There is no free lunch, unfortunately the next generation will be paying for our over-consumption for years to come. Baby-boomers at their best..